Tax has been a subject of huge debate in recent times, and so it should be. Whilst taxes can be used by governments to spend on public programs that benefit the general population, there is no doubt that taxes also have an impact on investment returns.
That's why it comes as no surprise that at times US listed stocks have traded higher on news that US president Donald Trump promised big tax cuts.
Even Australian listed stocks such as CSL Limited (ASX: CSL), Cochlear Limited (ASX: COH) and Westfield Corp Ltd (ASX: WFD) could benefit from the Trump trade.
Whilst Australia's corporate tax rate is currently 30%, there are some companies with a lower effective tax rate:
- Stapled securities and infrastructure trusts such as Transurban Group (ASX: TCL), Scentre Group (ASX: SCG), Sydney Airport Holdings Pty Ltd (ASX: SYD) and Goodman Group (ASX: GMG) also have effective tax rates which are lower than 10%. This is because stapled securities utilise the 'flow-through' nature of trusts for tax purposes. Under this principle, as long as the trust generates most of its income from 'passive' sources and also distributes most of its taxable income each year, the income is taxed in the hands of unitholders and not at the trust level.
Foolish takeaway
Whilst tax is obviously a big consideration prior to making an investment, it should not be the sole or main driver of an investment decision. As always, the underlying fundamentals of expected cash flows to be produced should determine whether you invest or not. If it's dividends that you are after, try this top dividend stock.
